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Economy to shrink in first quarter: ANZ, NAB

Economists at ANZ and National Australia Bank are tipping the Australian economy will shrink in the first three months of this year as the coronavirus and bushfires weigh down an already soft economy.

The bearish assessments come as Prime Minister Scott Morrison says the travel ban on visitors from China will be reviewed before the February 14 expiry and could be extended beyond the initial two weeks - a move that would stop thousands more Chinese tourists and university students from spending money in Australia.

RBA governor Philip Lowe said he would be surprised it the economy shrunk in the March quarter and that the coronavirus outbreak would need to get worse for this to happen.

ANZ estimates the impact of the coronavirus will slash 0.5 of a percentage point off March quarter gross domestic product and a smaller hit from the bushfires.

The bank forecasts the economy to contract 0.1 per cent in the first quarter, before recovering later in the year.

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"The understandable travel ban in place in Australia on all foreign nationals who have been in China, as well as airline cancellations, will act to sharply reduce the level of tourist arrivals," ANZ economists said in a research note on Wednesday.

"There is a very wide range of uncertainties around the outlook. The virus’s timeline, the behaviour of non-China tourism, the impact on broader Chinese and global growth, and the degree to which Australians limit their travel abroad.

"While the hit to near-term growth is large, we expect the number of arrivals from China to turn around in Q2, with the rebound in tourism adding to growth in Q3 and Q4.

"Consequently, the impact on year-end growth is likely to be small."

NAB chief economist Alan Oster is also expecting a negative March quarter, suggesting that the effects of the coronavirus and bushfires will hit consumption levels, which he expects to be lower than what most economists forecast.

"We haven't put a number on it but we expect GDP to go negative in the March quarter. The question will be: is it a big negative or a small negative?"

While not officially forecasting a negative December quarter, Mr Oster said weaker than expected December retail sales figures due out on Thursday could risk a surprise negative quarter there too.

Two consecutive negative quarters of growth is defined as a recession.

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"The question will be how large the retail trade volumes will be and we think they will be flat," he said.

Retail sales surged 0.9 per cent in November, but economists believe much of that was due to shoppers bringing forward spending for the November Black Friday online sales.

The RBA hopes a short-term growth hit from the coronavirus and bushfires will be temporary and recovere in future quarters as bushfire rebuilding kicks in and Chinese visitors return after the travel ban ends.

Dr Lowe said on Wednesday that the fires would shave about 0.2 of a percentage point off GDP across the December and March quarters.

"In assessing the impact of this on the Australian economy as a whole, we have taken into account that there will be a material rebuilding effort and that government grants and insurance payments will assist many people," Dr Lowe said.

"On this basis, our assessment is that GDP growth for 2020 as a whole will be largely unaffected."

He said the coronavirus was a new uncertainty and it was "too early to tell what the overall impact will be".

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"Much will depend on the success of the various efforts to control the virus so we are monitoring developments closely," he said.

The RBA is using the SARS outbreak in 2003 as a guide.

"On that occasion, there was a sharp slowing in output growth in China for a few months, before a sharp bounce-back as the outbreak was controlled and economic stimulus measures were introduced," Dr Lowe said.

"Today, China is a larger part of the global economy and it is more closely integrated, including with Australia, so the international spillovers could be larger than they were back in 2003."

The RBA still expects a "step-up" in growth to 2.75 per cent this year and 3 per cent in 2021, buoyed by mining investment in 2020 and a recovery in housing construction next year.

More than 10,000 people poured into the nation's capital on the ninth day of protests over police brutality, but what awaited them was a city that no longer felt as if it was being occupied by its own country's military.